NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a preliminary rating of BBB- (sf) to Insurance Administration Fee Asset-Backed Notes, Series 2018-1. The notes are newly issued asset-backed securities backed by a portfolio of administrative fee paid to Lombard International Administration Services Company, LLC (“LIAS”).
The notes are secured by a portfolio of administrative fees (the “Receivables”), which are paid to LIAS for administrative services rendered pursuant to an administrative services agreement between LIAS and certain insurance carriers. The Receivables are typically calculated as a specified percentage of the cash surrender value (“CSV”) associated with a portfolio of separate account bank-owned life insurance (“BOLI”), corporate-owned life insurance (“COLI”) policies and variable life insurance policies for high net worth (“HNW”) individuals. The Receivables also include per-insured-life administration fees and in the case of certain fees, as a percentage of the CSV of assets of a policy allocated to a particular set of investments within the separate account. The policies were issued to 79 corporations and banks and 72 HNW individuals.
The portfolio contains 310,537 insured lives from Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company where the weighted average age (by CSV) of the insureds is approximately 61. The aggregate CSV of the portfolio is approximately $39.8 billion as of December 31, 2017. Approximately, $18.0 billion of CSV is attributable to inside build-up of the policies, i.e., accretion in excess of the in-force premiums paid at the inception of the respective policies. By CSV, BOLI policies, COLI policies and policies to HNW individuals represent approximately 88.5%, 10.3% and 1.2%, respectively, of the portfolio. The top 10 policyholders represent approximately 81.9% of the portfolio by CSV. In 2017 the administrative fees received by LIAS as a percentage of CSV was approximately 0.12% and the net revenue collected was approximately $45.4 million. The net present value of the administrative fees is approximately $448 million based on a discount rate of approximately 11.2% per annum.
KBRA analyzed the transaction using the Global General Rating Methodology for Asset-Backed Securities published on November 28, 2017, Global Bank & Bank Holding Company Rating Methodology published on February 19, 2016 and Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017. In applying the methodologies, KBRA developed credit estimates for the carriers and the top three policyholders in the portfolio. The top three policyholders comprise approximately 71.8% of CSV and approximately 50.7% of the anticipated net revenue in the first year of the transaction. In addition, KBRA retained the services of an actuarial firm, Elucidor, LLC, to assist KBRA in analyzing a report prepared by a nationally recognized actuarial firm retained by LIAS, to provide a valuation of the administrative fees associated with the policies.
KBRA believes the transaction benefits from sufficient credit enhancement and a structure that accelerates principal payments to the rated notes upon weakening asset performance.
|Class||Rating||Initial Principal Balance|
|Class A Notes||BBB- (sf)||$300,000,000|
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Representations & Warranties Disclosure
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available here.
Related Publications: (available at www.kbra.com)
- Global General Rating Methodology for Asset-Backed Securities
- Global Bank & Bank Holding Company Rating Methodology
- Global Insurer & Insurance Holding Company Rating Methodology
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.